The price of Bitcoin (BTC) rose more than 12% on February 15, marking the highest daily close in more than six months. Curiously, the move came as gold hit a 40-day low at $1,826, indicating a potential shift in investors’ risk assessment for cryptocurrencies.
A stronger-than-expected US inflation report on February 14 showed 5.6% year-on-year growth, followed by data showing resilient consumer demand that caused traders to rethink value scarcity of bitcoin. U.S. retail sales rose 3% in January from the previous month, the biggest gain in nearly two years.
On-chain data indicates that the recent gains can be attributed to a mysterious institutional investor who started buying on Feb. 10. According to data from Lookonchain, nearly $1.6 billion in funds flowed into the crypto market between February 10 and February 15. The analysis showed that three notable USD Coin (USD) wallets sent funds to various exchanges around the same time.
More importantly, news has emerged that the Binance exchange is preparing to face sanctions and settle possible outstanding regulatory and law enforcement investigations in the United States, according to a Wall Street Journal report from the February 15. The exchange’s chief strategy officer, Patrick Hillmann, added that Binance was “very confident and felt really good about the direction of these discussions.”
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves under current market conditions.
Bitcoin Long Margins Have Entered the “FOMO” Range
Margin markets provide insight into the position of professional traders, as they allow investors to borrow cryptocurrency to leverage their positions.
For example, one can increase exposure by borrowing stablecoins to buy (long) Bitcoin. In contrast, Bitcoin borrowers can only bet against (short) the cryptocurrency. Unlike futures contracts, the balance between long and short margins is not always equal.
The chart above shows that the margin lending ratio for OKX traders increased between January 13 and January 15, signaling that professional traders added leveraged long positions as the price of Bitcoin rose above the resistance at $23,500.
One could argue that the demand for borrowing stablecoins for bullish positioning is excessive, as a stablecoin/BTC margin lending ratio above 30 is unusual. However, traders tend to deposit more collateral after a few days or weeks, which pushes the indicator out of the FOMO level.
Options traders remain skeptical of a sustained rally
Traders should also analyze the options markets to understand if the recent rally has caused investors to become more risk averse. The 25% delta skew is a telltale sign whenever arbitrage desks and market makers overcharge for upside or downside protection.
The indicator compares similar call (call) and put (sell) options and turns positive when fear prevails, because the protection premium of put options is higher than that of risky call options.
In short, the bias measure will jump above 10% if traders fear a Bitcoin price crash. In contrast, generalized excitement reflects a negative bias of 10%.
Related: $24K Bitcoin — Is it time to buy BTC and altcoins? Watch Market Talks live
Note that the 25% delta skew has been neutral for the past two weeks, signaling equal prices for bullish and bearish strategies. This reading is highly unusual given that Bitcoin gained 16.2% from Jan 13 to Jan 16 and generally one would expect excessive upside taking the bias below minus 10.
One thing is certain, the absence of bearish sentiment is present in the futures and options markets. Still, there is worrying data on excessive margin demand for leveraged buys, although it is too early to call it worrying.
The longer bitcoin stays above $24,000, the more comfortable these professional traders are with the current rally. Additionally, bears using the futures markets liquidated $235 million between Jan. 15-16, leading to less appetite for bearish bets. Thus, the derivatives markets continue to favor a bullish momentum.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed herein are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
